Russia’s 15% Rates Drive Triple EU Growth

Russia grows three times faster than the EU as expensive gas hits Germany

Russia is growing at triple the rate of the European Union. This figure appears in economic press and is accurate, but it represents a comparative trap: the country sustaining a large-scale war does so with interest rates at 15% and an estimated 3% growth for 2024, while Europe’s industrial engine stalls due to energy prices. The question is not whether the number is good or bad, but what it measures.

What lies behind Russia’s growth despite 15% rates?

An official rate of 15% combined with 3% growth is not a common occurrence. Some interpret this mix as evidence of an economy stimulated by public spending and issuance, with capital goods industries working overtime thanks to cheap domestic raw materials—akin to the United States during World War II. The other half of the analysis suspects the opposite: that growth relies on war effort and money that isn’t where it seems.

Germany pays for high energy costs with lost industrial output

In Germany, the numbers move in the opposite direction. Consumption fell 15% in 2022 and accumulated another 8% decline through the year so far. Production in energy-intensive industrial sectors dropped 12.2% year-on-year in June 2023—though up 1.1% month-on-month—according to cited federal figures. In short: factories requiring industrial quantities of gas are reducing activity, and those that can, are relocating.

The underlying argument is basic accounting. German industry ran on cheap pipeline energy; now it buys more expensive supplies from the US, Qatar, or Norway. Less margin means less competitiveness against China and even against the Americans themselves. Those arguing that European energy policy was a mistake don’t need to exaggerate. They only need to compare the 2021 bill with today’s.

• Consumption in Germany: -15% in 2022 and -8% cumulative thereafter
• Energy-intensive production: -12.2% year-on-year in June 2023
• Rates in Russia: 15%, with estimated 3% growth

The market Russia lost and the one Europe didn’t gain

Russia has lost a market three times larger than its population; Europe has lost one three times smaller. Each side draws its own conclusion from this asymmetry. Exporting raw materials is no bargain—Venezuela, Algeria, or Congo live off it without escaping poverty—but selling oil and gas, which always find buyers, differs from selling cars. Russians now place their production in China and India at a discount, yes, but with volume.

The other side is the European one. Abruptly renouncing 150 million customers has a cost, and replacing entire industrial chains with domestic production doesn’t happen in two fiscal years. A worker in a Russian vehicle factory and one in a German plant aren’t facing the same stakes: one produces for a stimulated internal market, the other depends on exporting with energy costs eating into margins.

Why aren’t companies and skilled professionals moving to Russia?

The most uncomfortable counterargument to the narrative of a Russian paradise is the evidence: there are no visible multinationals establishing themselves nor streams of professionals relocating there. Russian bureaucracy is extensive and doesn’t facilitate entry for foreign entrepreneurs, while other countries compete with visas and digital nomad programs. The absence of such flow, this reading argues, says something about guarantees and trust.

The response is that a capitalist system isn’t measured by how many expatriates it attracts. Russia has companies, a stock exchange, and a functioning private sector, with the peculiarity that part of what was foreign capital passed into local hands. That the West doesn’t see it doesn’t miccionan it doesn’t exist, they repeat. And here the conversation stalls: some ask for concrete figures, others dodge them.

Protectionism, China, and the temptation to substitute imports

China appears in almost every derivative of this issue. It is described as an economy with selective liberalization and technocratic planning, a hybrid that doesn’t fit standard economic schools and has grown with state control over credit and industry. From there, the discussion jumps to protectionism as a recipe, recalling that England, the US, Germany, Japan, and South Korea applied tariffs and protection until they had their own industries. The problem with copying that manual is that it requires something Europe lacks now: time and cheap energy.

With these elements, the most reasonable forecast for 2024 is dull. If energy prices don’t ease, European intensive industry will continue to shrink, and the growth differential will persist. Russia will keep showcasing the headline data, with its 15% rates and 3% growth under its arm. Until someone explains how that growth is calculated, or until the war stops obscuring the accounting.